Number of millionaires rises in Bay Area, U.S. and world / Report finds rich getting richer by an average of 8.2%

The rich are getting richer -- and there are more of them, according to an annual report on world wealth.

About 2.5 million Americans, or almost 1 percent of the population over age 15, have more than $1 million in financial assets such as stocks, bonds and bank accounts, according to a study published Thursday by Capgemini and Merrill Lynch & Co. The report did not factor in the value of people's primary residences, which obviously would increase the number of millionaires.

Worldwide, 8.3 million people were millionaires in 2004, up from 7.7 million in 2003. Their combined wealth rose 8.2 percent to $30.8 trillion.

In the Bay Area, according to a separate study that the report's backers commissioned from research firm Claritas, 5 percent of all households in the San Francisco and San Jose metropolitan areas have at least $1 million in financial assets. That was the highest percentage among the 18 regions included.

Although New York has the most millionaire households -- 101,764 -- they represent only 2.8 percent of the city's total households.

Despite the high percentage of local millionaires, the Bay Area had the lowest growth among millionaire households from 2003 to 2004. The 31,908 millionaire households in the San Francisco metropolitan statistical area, which includes San Francisco, Oakland and Fremont, represented an increase of 3.51 percent. Meanwhile, the 26,102 millionaire households in the San Jose metropolitan statistical area, which includes San Jose, Sunnyvale and Santa Clara, had grown 4.75 percent.

By contrast, the number of millionaire households grew at double-digit rates in Houston (12.59 percent increase), San Diego (10.72 percent) and Orange County (10.46 percent).

Rich Hogan, senior vice president of Merrill Lynch in San Francisco, said it makes sense that the rich are getting richer.

"Coming off the heels of a period where money is so cheap to borrow, if you have well-thought-out avenues to invest, you've been able to take advantage of basically free money," he said.

Current political conditions are also a factor.

"There's no question that the tax laws have supported that people with wealth are able to keep a larger percentage of it; the amount they pay in taxes isn't going up and is similar to the amount in taxes a much less wealthy person pays," Hogan said.

A New York Times analysis this week found that under the Bush administration tax cuts, people who earn more than $10 million a year pay a smaller percentage of their income in taxes than those making $100,000 to $200, 000, while the 400 best-paid people pay about the same percentage of their income in taxes as people making $50,000 to $75,000.

Philip Cook, a professor of public policy at Duke University and co- author of "The Winner-Take-All Society" about the growing inequality of earnings, also pointed to the nexus between politics and wealth.

"The increasing concentration of wealth has a political effect," Cook said. "It becomes incredibly important for politicians to win (rich people's) favor.

"The fact that we're seeing gradual repeal of the inheritance tax and getting judges who are more favorable to business are two reflections of that, " he said. "With money comes power, and some of that power is political. That's part of why the public has every reason to be distressed about this trend."

Despite their wealth, affluent people are worried about the financial future, according to a separate study released Tuesday by U.S. Trust Co., which polled a representative sampling of the top 1 percent of wealthiest Americans.

More than 80 percent worry that the next generation will have a difficult time financially, while 74 percent worry that educational costs will increase.

Worries about inflation and diminishing returns from the stock market were also up significantly from the previous year. Concerns about terrorism's impact on the economy and securities market were expressed by 77 percent of respondents, down from almost 90 percent the year before.

For those seeking to chart their own course to millionairedom, the Capgemini/Merrill Lynch report broke out how the very rich allocated their assets.

Last year was a "hold-and-see" year for millionaires, the report said, characterizing their asset allocation strategies as growing more conservative.

"Wealthy people are more likely to have an adviser and therefore have a plan as things get sideways," Hogan said. "They tend to act and respond to (changing market conditions) better with disciplined rebalancing programs.

"Essentially what that means is, counter to human behavior of everyone wanting to chase what's hot, they pare back the asset classes doing better and invest in those doing less well."